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Console Wars

Console Wars. Strategic Competition in the Seventh Generation of Video Game Consoles (2005-2011) Andrew Rawson Edinboro University of Pennsylvania May 30, 2014. Data. Monthly sales figures, NPD Group Collected from news publications, press releases

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Console Wars

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  1. Console Wars Strategic Competition in the Seventh Generation of Video Game Consoles (2005-2011) Andrew Rawson Edinboro University of Pennsylvania May 30, 2014

  2. Data • Monthly sales figures, NPD Group • Collected from news publications, press releases • Average monthly sales in previous two years • Holiday-season phenomenon

  3. Leadership Models in Oligopoly • Stackelberg • Firm A moves before Firm B; Firm A gains advantage • Bertrand (price competition) • Firm A and Firm B move simultaneously, “split advantage evenly” • Cournot (quantity competition) • Move simultaneously, no advantage

  4. Prelude to War • Sony PlayStation 3, Microsoft Xbox 360, Nintendo Wii • Blu-ray vs. HD DVD • Core vs. Casual

  5. Seventh Generation - Launch • Unveiling • Microsoft Xbox 360: May 12, 2005 • Sony PlayStation 3: May 16, 2005 (E3) • Nintendo “Revolution”: May 17, 2005 (E3) • Launch • Xbox 360: November 22, 2005 ($300, $400) • PlayStation 3: November 17, 2006 ($500, $600) • Nintendo Wii: November 19, 2006 ($250)

  6. Seventh Generation - Launch (cont.) • Microsoft’s advantage • One-year head start over Sony • 85 Xbox 360 titles available by PS3 launch (14 titles) • 607k units sold in last 40 days of 2005 alone • Sony’s advantage • PS3 equipped with Blu-ray player • Built-in WiFi

  7. Launch Strategies • Incumbent vs. Entrant • Microsoft moved first, sold 3.4 million units before Sony sold their first • Supply-line issues resolved before competition began • Network effect • Larger user base more attractive to developers

  8. Launch Strategies (cont.)

  9. Nintendo Factor • Casual vs. Core • October 2007: Xbox 360 Arcade ($279) • Nintendo supply-line issues

  10. First Price Cuts (2007) • Apr. 29: Microsoft releases Xbox 360 Elite • July 9: Sony expands storage of low-end model (effective price cut) • Aug. 6 • Sony expands storage capacity of high-end model • Microsoft cuts prices of all three models • Low-end to high(-$30, -$50, -$30) • Nov. 2: Sony cuts all prices by $100

  11. First Price Cuts (2007) Impact • Monthly market sales shares • June 2007 • Microsoft: 29%, Sony: 15% • First move: July 2007 • Microsoft: 23%, Sony: 21% • Retaliation: August 2007 • Microsoft: 34%, Sony: 16% • No change in long-term game

  12. First Price Cuts (2007) Impact (cont.) • Sony cuts and the “Nintendo Factor” • Nov. 2007 • Microsoft: 34%(-2%), Sony: 21%(+9%), Nintendo: 45%(-7%) • Sony still lagging behind • Microsoft maintains long-game Stackelberg leadership

  13. The Great Escalation of 2008 • Announcements of future cuts • July 13 (E3): Microsoft announces storage increase for August 1 release (effective price cut) • July 15 (E3): Sony announces price cut of high-end model (-$100) to $400 for Sept. 1 • Surprise retaliation • Sept. 5: Microsoft cuts prices of all models (Xbox 360 Elite now $400)

  14. The Great Escalation of 2008 (cont.)

  15. Battle of the Motion Controllers • Playstation Move • Released Sept. 19, 2010 • ~$80 with optional navigation controller • Microsoft Kinect • Released Nov. 4, 2010 • $149.99 • Bundling

  16. Motion Controllers (cont.)

  17. Battle of the Motion Controllers (cont.) • Strategies • Stackelberg competition? • Targeted markets differ

  18. Conclusion • Early Stackelberg competition • Consoles “equalized” • Moved in different directions in end-stages

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